The nation's largest pharmacy benefits manager, Express Scripts Holding Company , issued a strong outlook for the second quarter in its earnings release. The company said it expects current-quarter earnings (excluding items) of $1.39 to $1.43 a share. Analysts polled by Thomson Reuters projected $1.36.

Earnings for the first quarter were in line with a consensus estimate of $1.10 per share and up from earnings of $0.99 per share reported a year ago. Revenue gained 5.1% compared with the same quarter last year, and profit was up $441.1 million, or $0.60 a share, versus a year-ago profit of $328.3 million, or $0.40 a share.

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Competition ramping up from UnitedHealthIn contrast to its upbeat guidance for next quarter, Express Scripts didn't raise its outlook for the year. Adjusted claims also fell this quarter, slipping 4% to 307.6 million. Claims fell the previous quarter by 6.6%, an impact that management attributed in part to the roll-off of UnitedHealth Group claims.

In a move that will further increase its PBM heft, UnitedHealth announced that it will acquire Catamaranfor $12.8 billion. While Express Scripts will maintain its dominant position among PBMs, the consolidation turns UnitedHealth's Optum Rx division into the nation's third largest PBM, with CVSHealth Corporation retaining second place.

While the fallout from the megamerger is difficult to predict, back in 2011 it was assumed the trend would be for managed care companies to outsource their PBM operation to PBM specialists. Instead, when Express Scripts bought Medco Health for $29 billion, it faced the defection of UnitedHealth, which decided to take its PBM business in-house.

On the earnings call, Express Scripts CEO George Paz talked about the changing competitive landscape and said Express Scripts intends to retain its dominant position: "As our industry evolves, and plan sponsors have more business models to choose from, it is increasingly clear that Express Scripts is the best choice to manage America's pharmacy benefits."

PBM market is rapidly expandingOne reason Express Scripts can remain sanguine about its prospects is that the overall PBM market is in great shape. All the major players in the PBM space -- Express, CVS, and UnitedHealth through Optum Rx -- have outshone the broader market index since the ACA health care-reform law came into effect.

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Growth for the PBMs is being fueled by increased consumption of prescription drugs, increased generic utilization, and the shift toward mail order. In particular, pharmaceutical drug use has been increasing on both an aggregate and a per-capita basis. The trend is expected to continue, because of the prevalence of chronic disease and increased life expectancy.

How great is the projected increase? According to the 2013-2023 National Healthcare Expenditures forecast, prescription-drug spending should rise 5.4% each year from 2016-2019, and 6% annually through 2020-2023. The growth is due to a rising trend of expensive specialty drugs, as well as anticipated changing clinical guidelines designed to encourage drug therapies at earlier stages of treatment.

Hard-nosed stance on drug pricingExpress is also benefiting because rising drug prices create more value for PBM services. Big PBMs have great bargaining power against drug manufacturers, as Express Scripts showed when it effectively endedGilead Sciences' lock on the hep-C drug market last year. Express Scripts announced that it will add AbbVie's Viekira Pak to its National Preferred Formulary, while excluding Gilead's Sovaldi and Harvoni, and Johnson & Johnson's Olysio.

Express Scripts hasn't been shy about addressing what drug targets it plans to take on next. Paz said the company was looking closely at new cholesterol drugs that target protein PCSK9, which biotechs Regeneron Pharmaceuticals and Amgen are already rolling out.

"They are pretty astonishing, but they are also very expensive," Paz said. Beyond injectable cholesterol meds, cancer and diabetes drugs are other targets for Express Scripts.

Headwinds for Express ScriptsIf other insurers move toward in-house PBM solutions, similar to what UnitedHealth has done with Optum Rx, the outlook won't be so rosy for the nation's largest PBM.

But while this space is consolidating, it's unlikely that other insurers will be tempted to go independent. Size really matters when it comes to getting lower drug costs for clients, and none of the other insurers could probably match the cost savings the major PBMs generate.

UnitedHealth expects to close its Catamaran transaction by the end of the fourth quarter of 2015, pending regulatory approval. While the leap of UnitedHealth to third place means Express will soon be swimming with the sharks, Express has plenty of teeth of its own, as it displayed by beating up major drugmakers to squeeze costs. And for now at least, the company doesn't appear to be flinching.

Cheryl Swanson owns shares of Amgen,,CVS Health, and Regeneron. The Motley Fool recommends CVS Health, Express Scripts, Gilead Sciences, Johnson & Johnson, and UnitedHealth Group. The Motley Fool owns shares of Express Scripts, Gilead Sciences, and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.